Tax day is more than six months away, but thinking about it now can help you lower your tax bill. Since you will be filling your taxes for 2015, you need to make all of your tax moves before the year ends, even if you won’t be doing your taxes until March. Here are four ways that you can help save some money on your taxes:
Contribute to Your Retirement
Making pre-tax contributions to your retirement can be a great way to save on your taxes. When you make pre-tax contributions, that money is not considered part of your income, so it lowers your overall income, which in turn lowers your tax burden. The smartest way to do this is to contribute to your company’s 401k plan, although keep in mind that there is a $17,500 cap to your contributions. You can also contribute to a traditional IRA (not a Roth IRA, which requires post-tax contributions) to lower your income. You can set up a traditional IRA through a participating bank or through a trading website like TD Ameritrade.
Donate to Charity
Charitable donations are a great way to reduce your overall tax burden. You can deduct up to 50 percent of your Adjusted Gross Income when it comes to charitable donations. Just make sure that you are getting the proper documentation, otherwise you won’t be able to deduct. Money donations need a receipt or a cancelled check to validate the donation, so dropping cash in a charity basket doesn’t count. If you contribute more than $250, you need a written record from the charity.
Defer Your Income
Your overall income is the driving factor behind how much you will owe in taxes, so by deferring some of your income, you can lower your tax burden. Your tax rate is determined by your Adjusted Gross Income, and deductions on your taxes can help bring that number down, but there are things you can do before the year ends to keep that number low. Elect to have more taxes taken out of your paycheck. Avoid selling any assets that could be taxed. See if you can get your work bonus in January instead of December. Find ways to keep your overall income number down and your tax rate will in turn be lower.
Use Money in Your Flexible Spending Account
Many people forget about Flexible Spending Accounts (FSA), and it can end up costing them hundred or thousands each year. An FSA is a pre-tax account that you can contribute to for medical expenses. Since you contribute up to $2,500 a year to the FSA, it can be a place where money goes to get lost. Make sure you know how much you are contributing to the account and how much you have left over before the year ends. Once the year ends, you lose that money if you don’t use it, unless your company has a carry-over plan.
If you need help figuring out your taxes before the year ends, check out tax sites like TaxACT.